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This month, I guide asset allocations outside the USA from a core idea. As I write on April 7th, the latest one-week ‘risk-off’ episode in non-US markets has reversed. A profit taking exercise, after a strong 7-week momentum run, ran its course.
Here are 4 reasons why the non-U.S. bull is alive and well–
- Upside surprises to forward-looking Purchasing Manager Indices (PMIs) came out on Mainland China. An overall state of PMI expansion — in both services and manufacturing — bodes well for more than just China.
- Weird behavior, tied to Japanese stock selling by oil dependent sovereign wealth firms, and hedging, should morph into a state of bottoming and reversal. The bad news is all priced in, and the move is overextended.
- WTI and Brent oil prices traders are done selling and shorting down towards $35 a barrel. A short-term price bottom would be my call. Consensus still sees $50 a barrel as the 12-month target.
- The Fed is tied down to no more than 2 rate hikes in 2016, due to the U.S. election, and due to the negative rate policies in Europe and Japan. Lower risk-free rates leave the risk-on bid alive for stocks. Where else can investors go? Basically the fixed income cupboard is left bare by the world’s dominant monetary authorities.
Don’t read this and think the 4 non-U.S. drivers keep alive a smooth week-after-week rise in non-U.S. stocks.
The bull market should be on for non-U.S. stocks as long as we don’t have oil prices and China fall apart at the same time. But it won’t be smooth sailing all the time.
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